Economy, Up or Down?

Dear Friends,

It seems to me that the economy should have at least started to recover. Even had the government done nothing, and the Elite’s friends had crashed and burned, the economy should have shown signs of life. Yet it stubbornly refuses to get better. Despite the almost three trillion dollars spent on TARP and stimulus.

I have even noticed a sea change in the way the unbiased media couches economic news. For eight years the unbiased media steadfastly denounced every indicator as a bad one. The unemployment rate hits four percent and it will be out of control inflation. Productivity gains were a sign the economy may slacken. Increase in overtime payments were a sign the workforce was overtaxed. Every indicator was taken as bad news.

Now they have switched gears and call every economic indicator a good one. The unemployment rate hits nine point five percent and the loss of jobs was only five hundred thousand. Both taken as signs the economic drop may be slowing. Every indicator is taken as good news yet despite the propaganda the economy continues to slow and fall into the abyss. Commercial real estate will be next edge. When sticky prices run up against fluid demand.

Even were the economy to hit a bottom it would have another edge. The governments of the world have collectively spent too much of the people’s money on pork. Had the governments of the world lowered the marginal tax rate for the people of the world the money would have been used productively.

When tax cuts were being debated economists were arguing that people would “just” save the money or pay down debt. That people wouldn’t spend the money so the government should do the spending. Keynesian in nature demand generates supply. But the problem with John Menard Keynes theory is that if the demand is government generated, government must keep demanding, else the economy goes into recession. The economic incentives become skewed to meet the new demand.

To put it another way. Demand shapes supply. In that, if there is a demand for A, then suppliers of A will shape their outputs to meet the needs and demands of the customer. The longer the customer is the same the better the suppliers of A will meet their needs and demands. But, government cannot keep demanding a quarter of national GDP every year, on top of the other obligations past Elite have thought fit to saddle the government with. Government debt will go nuclear and irradiate the currency. So government generated demand must end… Eventually.

So when government demand inevitably goes down the economy must go into a recession. To retool to meet the demands of it’s new customers. Customers that have been denuded of their money by government’s avarice. The inevitable recession will be long, due to the lack of largess in the hands of the people.

It’s also a valid fear that the people will learn to do with less. Become too thrifty. People who fear the future save for it. People who relish the future spend like a drunk. The best path, of course, is the mean. To save for the future but not so much as to deny today. But if government create’s such a long recession that people become used to saving, and not ever spending, it is hard to start the people spending again. Inertia and all that…

By the time this economic downturn has played out we will have far less money to invest in anything. Government regulation will stifle new companies, as will onerous taxation, to pay the interest on the debt. So startup money will be scarce. Delaying or forestalling new businesses startups. Elongating the recession into the recovery.

The longer the government (roof) holds up the economy (foundation) the worse the consequences… I predict the government will double down on it’s bet.